Relatório Orient Express

7/28/2019 Relatrio Orient Express

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Orient-Express Hotels Ltd2010 Annual Repor


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21New York, New York

The Inn at Perry CabinSt Michaels, Maryland

Keswick HallCharlottesville, Virginia

Charleston PlaceCharleston, South Carolina

La SamannaSt Martin, French West Indies

Maroma Resort and SpaRiviera Maya, Mexico

Miraflores Park HotelLima, Peru

Machu Picchu Sanctuary LodgeMachu Picchu, Peru

Hiram Bingham(Cuzco-Machu Picchu)

PeruRail, Peru

Hotel MonasterioCuzco, Peru

Las Casitas del ColcaColca Canyon, Peru

Hotel Rio SagradoUrubamba, Sacred Valley, Peru

Casa de Sierra NevadaSan Miguel de Allende, Mexico

El EncantoSanta Barbara,

California

Key

Hotels

Trains & Cruises

Restaurants

The WestcliffJohannesburgSouth Africa

Hotel Splendido& Splendido MarePortofino, Italy

Htel de la CitCarcassonne, France

Hotel Cipriani &Palazzo VendraminVenice, Italy

Villa San MicheleFlorence, Italy

Hotel CarusoBelvedereRavello, Italy

Villa SantAndreaSicily, Italy

Grand Hotel TimeoSicily, Italy

Northern BelleUnited Kingdom

Venice Simplon-Orient-ExpressLondon-Paris-Venice

Afloat in FranceCanals of Burgundy &

Languedoc, France

Reids PalaceMadeira, Portugal

Le Manoir auxQuatSaisons

Oxfordshire, England

Bora Bora LagoonResort & Spa

Tahiti, French Polynesia

Road To MandalayIrrawaddy River, Burma

La Rsidence Phou VaoLuang Prabang, Laos

The Governors ResidenceRangoon, Burma

La Rsidence dAngkorSiem Reap, Cambodia

NapasaiKoh Samui, Thailand

The Observatory HotelSydney, New South Wales

Eastern & OrientalExpress

Southeast Asia

Jimbaran Puri BaliBali, Indonesia

bud Hanging GardensBali, Indonesia

G

I

L

L

Eagle Island CampKhwai River LodgeSavute Elephant CampOkavango Delta,Botswana

Mount Nelson Hotel

Cape Town, South Africa

The Royal ScotsmanEdinburgh, Scotland

British PullmanUnited Kingdom

Orient-Express Hotels Ltd.02

Copacabana PalaceRio de Janeiro, Brazil

Hotel das CataratasIguassu Falls, Brazil

Hotel RitzMadrid, Spain

La ResidenciaDei, Mallorca, Spain

Grand Hotel EuropeSt Petersburg, Russia


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Orient-Express Hotels Ltd. 03

Contents Introduction

41 are hotels ranging across six continents, including

distinctive properties such as Hotel Cipriani in Venice,

Grand Hotel Europe in St Petersburg, Hotel Ritz in Madrid,Mount Nelson Hotel in Cape Town and Copacabana

Palace in Rio de Janeiro. Six tourist trains include the

legendary Venice Simplon-Orient-Express in Europe,

Eastern & Oriental Express in Southeast Asia and The

Royal Scotsman. We also part-own and manage

PeruRail in Peru, which operates the Cuzco-Machu

Picchu train services used by most travellers to Peru,

including the first class Hiram Bingham train

experience. The m.v. Road To Mandalay offers luxury

cruises on the Irrawaddy River in Burma and Afloat in

France operates indulgent pniche-htels (barges) on

the inland waterways of France. We also own and run

the iconic 21 Club restaurant in New York City.

Orient-Express will continue to acquire additionaldistinctive luxury properties and travel experiences

throughout the world when conditions are right. We are

actively seeking management contracts for similar

assets in key destinations and major gateway cities.

We look for properties that are special and unique as

well as luxurious, and avoid the use of a chain brand.Instead, the local hotel brand is promoted and the

Orient-Express brand used as an assurance of quality,

since we believe that discriminating travellers seek

distinctive individual hotels in preference to a chain.

There are some opportunities for the development of

private residences in the portfolio as certain hotels have

adjacent vacant land suitable for the construction of

luxury vacation villas. Our overriding commitment to

providing the highest quality of service, products and

amenities in our hotels is also a standard in our real

estate developments. Current projects include La

Samanna Villas, adjacent to our hotel on the French

side of St. Martin, West Indies, and an apartment and

marina development, Porto Cupecoy, on the Dutchside. There is also residential development around the

golf course on the estate of our hotel, Keswick Hall,

near Charlottesville, Virginia.

Orient-Express Hotels Ltd. is a hotel and travel company focused

on the luxury sector of the leisure market with many iconic and

highly acclaimed properties, offering an elite collection of travel

experiences. We own or part-own and manage 50 businesses

operating in 24 countries.

03Company profile

03Financial highlights

04Chairmans message

06Presidents overviewof performance

12Financial review

46Shareholder and

investor information

Left

The world of Orient-Express

The world of Orient-Express has 50

hotels, trains, cruises and restaurants

operating in 24 countries, ranging

across six continents.

Financial Summary2010 2009

$000* $000*

Revenue 571,942 450,910

Segment EBITDA (Note 1) 37,569 69,547

Net loss from continuing operations (63,049) (20,124)

Net loss per common share from continuing operations $(0.69) $(0.30)

Net loss per common share $(0.68) $(1.01)

Weighted average number of shares outstanding (million) 91.5 68.0

*Except per share amountsand number of shares

Front cover

Venice Simplon-Orient-Express

A recent television documentary by

David Suchet, the Poirot actor, was

broadcast in nine countries during

2010. The unprecedented level of

interest generated demonstrates the

enduring appeal of this mostauthentic of experiences.

Note 1: See Note 20 to the Financial Statements forreconciliation to Net loss from continuing operations


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Hotel Monasterio

The Companys employees in Peru

worked tirelessly to overcome the

effects of adverse weather conditions

in record time. Hotel Monasterio in

Cuzco is a national monument dating

from 1592. Work is underway on the

restoration of a second property in

the city, scheduled to open in 2012.

Chairmans message

April 1, 2011

Dear Fellow Shareholder,

I am delighted to be writing this message as our Company and our industry turns an

important corner, and the world appears to be heading for a period of sustained growth,

albeit at a varying pace across the globe.Double digit RevPAR improvement, the successful completion of the acquisition of two

historic properties in Sicily, Italy, andthe refurbishment of Hotel das Cataratas in Brazil were

some of the highlights of 2010.However the year as a whole was not without its challenges.

January saw unprecedented rainfall in Peru which led to catastrophic flooding in the

Machu Picchu region. PeruRail, the leading rail operator in Peru which we own in a joint

venture, was forced to suspend operations on the famous CuzcoMachu Picchu route

for over three months as the railroad was destroyed in almost 100 separate locations.

Amazingly, the workers of Ferrocarril Transandino, Orient-Express railroad infrastructure

company, rehabilitated the tracks at an unbelievable pace, and the iconic ruins at Machu

Picchu were again open to the public by April a great credit to our employees in Peru.

In February, flooding in Madeira cost 41 lives and all but forced Reids Palace to close

for a few weeks due to island access issues. Reids Palace became the focus of the

recovery, as management opened its doors to local people, true social responsibility.

These weather events were followed by the Icelandic ash cloud, which closed downthe skies over Europe, and civil unrest on the streets in Bangkok. All in all a challenging

start to 2010.

During this time, Orient-Express continued to stick to its tried and tested principles,

with quality of service at the fore. As luxury came back into mode, our properties

began to thrive. June was an exciting month; the soccer World Cup came to Africa for

the first time. Our two properties entertained guests from all over the world and a

successful tournament truly put South Africa in the minds of many.

The year closed with one final concerning event, signs of civil unrest in North Africa,

which finally resulted in demonstrations in January 2011. We watch events in the MENA

region diligently, and although we have no presence there, the possible impact of violence

is one we hope can be avoided. As I write, we are witnessing the aftermath of the tragic

earthquake in Japan, and our thoughts are with those affected.

Our year was a challenging yet rewarding one. Many of our properties around the

world were fted with prestigious awards and, again, our employees shone asstandards continue to exceed customer expectation. The Company made considerable

strides to improve its balance sheet and reduce its debt position some thanks to the

support of our long-term shareholders, to whom I hereby express my gratitude.

After serving four years as your Chairman and eleven years on the Board of Orient-

Express Hotels Ltd., it is time for me to step down at the 2011 annual general meeting

and hand the Chairmanship over to Robert (Bob) Lovejoy. Bob and I joined the Board

shortly before Orient-Express went public in August 2000 and, having helped navigate

the Company through some tough times during the recent economic crisis, I have

every confidence in Bobs talents as we look towards 2011 and beyond.

Finally, my fellow Board member, James B. Sherwood, founder of Orient-Express

back in the 1970s, also stands down at the 2011 annual general meeting, and I am

sure all shareholders will join me in thanking him for his incredible contribution to

Orient-Express and indeed the entire luxury travel industry.

James B. Hurlock

Chairman


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Presidents Overview of Performance

I can only echo the words of my Chairman - 2010 was

indeed challenging. World events distorted a year in

which our Company actually showed good same store

growth, with RevPAR up 11% in local currency. Our Rest

of World properties led the way, with Copacabana

Palace in Rio de Janeiro up 29%, our properties in

Southern Africa, helped by the soccer World Cup, up17%, and our Asian portfolio up 18%.

In North America, Charleston Place in Charleston S.C.,

the Companys largest property with 435 keys, grew

RevPAR 20%, with the region up 9%. External concerns

about drug related crime in Mexico hit the results at

Maroma Resort and Spa and Casa de Sierra Nevada,

and this trend unfortunately continues into 2011.

In Europe, the year was mixed. A slow start, not helped

by the Icelandic ash cloud, was boosted by a strong end

to the year in our Italian properties. In particular we saw

strong RevPAR growth at Hotel Caruso in Ravello and

at Le Manoir aux QuatSaisons in Oxfordshire, but we

experienced a poor year at Reids Palace in Madeira, as

the island experienced wide-spread flooding in February.

Trains and Cruises experienced 9% revenue growth

(excluding PeruRail) and is expected to outperform

throughout 2011 a real sign that luxury is back!

The year saw the Company make huge strides in

strengthening its balance sheet, with net debt down

$156 million to $571 million at December 31st. The

refinancing of $374 million of debt, pushing maturities

out between three to five years, means the Company

can begin to look forward with confidence.

Our results are predicated on clear underlying

principles. We own and operate great properties in

locations unsurpassed across the globe. Our 8,400

employees deliver the highest level of service

consistently, driving the top line. In 2008 and 2009, this

became of prime importance as the investment tap

was firmly closed.In 2010 we generated operating cash flows to enable

that tap to be slowly turned back on, with key investments

in Venice at Hotel Cipriani, in Brazil at Hotel das

Cataratas, and in Cape Town at the Mount Nelson

Hotel, seeing each of these iconic hotels upgraded.

A similar amount of capital expenditure in 2011 will be

spent to upgrade La Samanna in the Caribbean,

Maroma Resort and Spa in Mexico, Copacabana

Palace in Brazil and The Governors Residence in

Burma. By far the most exciting project, and the

culmination of ten years work in obtaining the permits,

will be the addition of five suites on the top floor of

Hotel Splendido in Portofino. These 1,000 square

foot suites are expected to generate a payback within

three years and push the Splendidos EBITDA into

record territory.

In February the English Court of Appeal reaffirmed

Orient-Express exclusive right to use the Cipriani trade

mark for hotel and restaurant services in Europe.

In 2011, we will explore opportunities to roll out the

Cipriani mark, as well as the 21 brand in North

America, and an exciting proposal to expand our

partnership with Raymond Blanc globally.


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La Residencia

La Residencia sits in a 32-acre estate

at Dei on Mallorcas northern coast

The hotel this year began work with a

local cooperative to restore the

olive groves in the estate to begin

production of its own olive oil. A field

of almond trees and a Mediterranean

herb garden to supply the kitchens

have also been planted.

Recognition is important in the luxury segment, and

awards such as 1st, 2nd and 4th best leisure hotels in

Europe from Cond Nast Traveller (UK) and 1st small

mainland US resort from Cond Nast Traveler (US) are

significant both for our employees and guests alike. Pride

in ones work drives results. Initiatives such as the stock

appreciation rights plan (enabling all employees toparticipate in our share price increase) and local incentive

schemes are key to this. I was delighted to be joined by

five recipients of our Employee of the Year award at the

New York Stock Exchange in August to ring the closing bell

on the tenth anniversary of our listing, a proud day for all.

Our commitment to environmental sustainability and

social responsibility is real. In 2010, a reforestation

scheme was initiated in the devastated region around

Machu Picchu to plant one million trees, of which

230,000 are already in place. Charleston Places Feed

the Need initiative to help feed the hungry and alleviate

strain on emergency food providers fed approximately

28,000 people, saving food banks an estimated $84,000.

Our hotels were recognized for their environmental

projects. In Virginia, Keswick Halls golf course was

designated a Certified Audubon Cooperative Sanctuary

for work done to preserve its wildlife habitats, while

Maroma Resort and Spa received Mesoamerican Reef

Tourism Initiatives Sustainable Tourism certification for its

commitment to the protection of the biodiversity and

ecosystem of the Riviera Maya. In January 2011,

Hotel das Cataratas attained ISO 14001 Sustainability

and SA 8000 Social Responsibility certification.

As I write, the outlook for 2011 looks bright. RevPARs

and EBITDA at many properties are approaching their

previous peak with signs that other properties are turning

the corner. 2011 should be the year where Europe sees the

most sustained recovery, driven by the North American

traveller. Our Trains and Cruises business again should

be a star performer.Keeping with our core principles and remembering

we are curators of unique experiences will see Orient-

Express thrive throughout 2011 and beyond.

In closing, I would like to put on record my thanks to

James Hurlock, our outgoing Chairman, with whom it

has been a pleasure to work since my appointment

as CEO in 2007, and to James Sherwood, founder

of Orient-Express, a visionary and pioneer in the

hospitality industry. I wish them well in retirement. As we

enter an exciting new chapter in the Orient-Express

story, I look forward to welcoming Bob Lovejoy to the

Chairman role, and to forming a successful partnership

as we aim for sustained growth.

Paul M. White

President and Chief Executive Officer


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Left top

Le Manoir aux QuatSaisons

The new Blanc de Blanc Suite at

Le Manoir aux QuatSaisons, where

each of the 32 keys is individuallydesigned. The hotel in Oxfordshire,

UK is famed for its two Michelin-star

restaurant.

Left bottom

Grand Hotel Europe

The newly created Pavarotti Suite

is one of ten historic suites named

for celebrated guests at this

St Petersburg hotel.

Right top

Copacabana Palace

Bar do Copa at Rios Copacabana

Palace has proved a hit with both

locals and visitors. Positioned near

the hotels stunning pool, its fiber

optic decor, laid-back music and

great cocktails attract a lively and

glamorous crowd.

Right bottom

Mount Nelson Hotel

Firstin a program of refurbishments at

Cape Towns celebrated hotel is the

renovation of 32 keys and the launch

of Planet Restaurant. Investment in a

further 60 keys and public areas of the

hotel is currently underway.

Owned Hotels: Europe2010 2009

Segment

EBITDA ($ millions) 37.4 38.6

Same RevPAR (in US$) 317 319

storeRevPAR change

(in US$) (1%)

RevPAR change

(in local currency) 2%

Owned Hotels: North America2010 2009

Segment



storeRevPAR change

(in US$) 10%

RevPAR change


Owned Hotels: Rest of world2010 2009

Segment



storeRevPAR change

(in US$) 28%

RevPAR change



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Hotel Splendido

Awarded Number One Overseas

Leisure Hotel by Cond Nast

Traveller (UK). In 2011 five 1,000

square foot suites will be added to

the top floor of the hotel.

Keswick Hall

Rated the USA's Top Small Resort

in the Cond Nast Traveler (USA)

2010 Readers' Travel Awards.

Additionally Keswick Halls golf

course has been designated a

Certified Audubon Cooperative

Sanctuary for work done to

preserve its wildlife habitats.



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Directors and Officers

James B. Hurlock Non-executive Chairman of the Board.

Partner (retired) of White & Case LLP (attorneys). Mr Hurlock

was Chairman of the Management Committeeof White & Case

LLP (1980-2000), overseeing the firms worldwide operations.

Georg R. Rafael Non-executive Vice Chairman of the

Board. Managing Director of Rafael Group S.A.M., a holdingcompany for hotel investments and the development of

international deluxe hotel properties. Previously Vice

Chairman - Executive Committee of Mandarin Oriental Hotels,

having sold Rafael Hotels Ltd, a deluxe hotel company he

established in 1986, to Mandarin Oriental in 2000.

James B. Sherwood Founder and Director. Formerly

Chairman of the Board. Mr Sherwood is the owner of the

Capannelle wine estate in Tuscany, Italy and serves

on the boards of a number of charitable, cultural and

educational institutions.

Mitchell C. Hochberg Managing Principal of Madden

Real Estate Ventures since March 2007. Previously Presidentand Chief Operating Officer of Ian Schrager Company.

Founded and ran Spectrum Communities, developers of

luxury communities in the north eastern United States.

Mr Hochberg is a lawyer and certified public accountant.

John D. Campbell Senior Counsel (retired) of Appleby

(attorneys). Mr Campbell is also Chairman of the Board of

HSBC Bank of Bermuda Ltd and a Director of Argus Group

Holdings Ltd.

Prudence M. Leith, CBE, DL Noted restaurateur,

television broadcaster and author. Previously founder, owneand Managing Director of Leiths Group (restaurants, chef

school, contract events and party catering) which was sold

to Accor in 1995. Ms Leith has served in the past as a non-

executive Director of several British public companies.

J. Robert Lovejoy Managing Member of J.R. Lovejoy &

Co. LLC (financial and strategic advisory firm). Previous

positions in finance have been with Coatue Management

LLC, Groton Partners LLC and Ripplewood Holdings LLC.

Served as Managing Director and General Partner of Lazar

Frres (investment bankers) for over 15 years.

Paul M. White President and Chief Executive Officer, since

August 2007. Elected to the Board in June 2008, he hashad a 25 year career in the lodging industry, 20 of which

have been at Orient-Express Hotels. He has been a hotel

General Manager, a Financial Controller and a Regional

Vice President with profit and loss responsibility for the

Companys operations across a third of the globe.

Previously Chief Financial Officer of the Company. Joined

from Forte Hotels in 1991.

Raymond Blanc, OBE Vice President. Founder and chef

patron of Le Manoir aux QuatSaisons since 1984 which

Orient-Express bought in 2002. Having been in the restaurant

business since 1969, he started his career in France before

coming to England in 1972, opening his first restaurant in

1977. Many top-rated chefs have trained under M. Blanc, a

prolific food writer and television presenter.

Filip Boyen Vice President and Chief Operating Officer.

Joined the Company in 1998. Formerly Vice President

Operations. Served as Vice President Africa, Latin America

and Australasia and Managing Director of Orient-Express

Hotels, Peru, responsible for the running of the Companys

hotels and railway transportation business, PeruRail, there.

Philip Calvert Vice President, Legal and Commercial

Affairs. An English barrister and New York lawyer. Joined the

Company in October 2008 as Director of Legal Services.

Previously with Sea Containers since 1983 during the period

of its shareholding in the Company.

Roger V. Collins Vice President, Design and Technical

Services. An engineer his entire career, he has worked in the

hotel industry since 1979 with Grand Metropolitan Hotels,

Courage Inns and Taverns, and Trusthouse Forte Hotels,

joining the Company in 1991.

Philip A. Gesue Vice President, Real Estate. Joined

the company in 2009 as Director of Global Real Estate.

Formerly with real estate investor Time Equities and

Biba Hotels. Background in real estate finance, acquisitions

and development.

Messrs Campbell,Hurlock and Lovejoy are

members of the AuditCommittee and they,together with GeorgRafael and PrudenceLeith, are members ofthe Compensation

and Nominating &Governance Committees

Directors

Officers Edwin S. Hetherington Vice President, General Counseland Secretary having joined Orient-Express Hotels in 1980.

Previously also an officer of Sea Containers Ltd. during the

period of its shareholding in the Company. A New York lawyer

Martin OGrady Vice President and Chief Financial Office

Joined Orient-Express Hotels in February 2008 from Orion

Capital Managers, a European real estate investment firm,

where he was Chief Financial Officer. Prior experience with

Mandarin Oriental Hotels Group in a senior financial position

Roy Paul Vice President and Chief Development Officer.

Joined Orient-Express in February 2011. Previously a Partne

in Cedar Capital (hotel asset investment and management)

and a Senior Vice President of Four Seasons Hotels for 20

years leading its hotel and resort development function.

Maurizio SaccaniVice President, Italy. Started his career

with Orient-Express Hotels at Hotel Cipriani and then joined the

Venice Simplon-Orient-Express. Starting with Villa San Michelein 1985, he has spearheaded the growth and operationsof

mostof theCompanyslandmark Italianhotels.

David C. Williams Vice President, Sales and Marketing.

Joined the Company in 1981 as Sales and Reservations

Manager and then served as Commercial Director

responsible for strategic marketing developments and

business initiatives in the Americas, Europe and Asia

Pacific. Previously with Carlson Marketing Group.

1


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Financial Review

13Report of IndependentRegistered PublicAccounting Firm

14ConsolidatedBalance Sheets

15Statements ofConsolidated Operations

16Statements ofConsolidated Cash Flows

17Statements of Changes inConsolidated Total Equity

18Notes to ConsolidatedFinancial Statements

42Summary ofQuarterly Earnings

43Five Year Performance

44Price Range of CommonShares and Dividends

44Summary of Earningsby Operating Unitand Region

45Summary ofOperating Informationfor Owned Hotels

45Corporate Governance

46

Shareholder andInvestor Information

12

This report contains, in addition to historical information,

forward-looking statements that involve risks and

uncertainties. These include statements regarding

earnings outlook, investment plans, debt reduction and

refinancings, asset sales and similar matters that are

not historical facts. These statements are based on

managements current expectations and are subject to

a number of uncertainties and risks that could cause

actual results to differ materially from those described in

the forward-looking statements. Factors that may cause

a difference include, but are not limited to, thosementioned in the report, unknown effects on the travel

and leisure markets of terrorist activity and any police or

military response, varying customer demand and

competitive considerations, failure to realize hotel

bookings and reservations and planned property

development sales as actual revenue, inability to

sustain price increases or to reduce costs, rising fuel

costs adversely impacting customer travel and the

Companys operating costs, fluctuations in interest rates

and currency values, uncertainty of negotiating and

completing proposed asset sales, debt refinancings,

capital expenditures and acquisitions, inability to reduce

funded debt as planned or to agree bank loan agreement

waivers or amendments, adequate sources of capital

and acceptability of finance terms, possible loss or

amendment of planning permits and delays in

construction schedules for expansion or development

projects, delays in reopening properties closed for

repair or refurbishment and possible cost overruns,

shifting patterns of tourism and business travel and

seasonality of demand, adverse local weather

conditions, changing global and regional economic

conditions in many parts of the world and weakness in

financial markets, legislative, regulatory and political

developments, and possible new challenges to the

Companys corporate governance structure. Further

information regarding these and other factors is

included in the filings by the Company with the U.S.

Securities and Exchange Commission.


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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Orient-Express Hotels Ltd.

Hamilton, Bermuda

We have audited the accompanying consolidated

balance sheets of Orient-Express Hotels Ltd. and

subsidiaries (the Company) as of December 31, 2010

and 2009, and the related consolidated statements of

operations, changes in total equity, and cash flows for

each of the three years in the period ended December

31, 2010. These financial statements are the responsibilityof the Companys management. Our responsibility is to

express an opinion on these financial statements based

on our audits.

We conducted our audits in accordance with the

standards of the Public Company Accounting Oversight

Board (United States). Those standards require that we

plan and perform the audit to obtain reasonable

assurance about whether the financial statements are

free of material misstatement. An audit includes

examining, on a test basis, evidence supporting the

amounts and disclosures in the financial statements.

An audit also includes assessing the accounting

principles used and significant estimates made by

management, as well as evaluating the overall financial

statement presentation. We believe that our audits

provide a reasonable basis for our opinion.

In our opinion, such consolidated financial

statements present fairly, in all material respects, the

financial position of Orient-Express Hotels Ltd. and

subsidiaries as of December 31, 2010 and 2009, and

the results of their operations and their cash flows for

each of the three years in the period ended December

31, 2010, in conformity with accounting principles

generally accepted in the United States of America.

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight

Board (United States), the Companys internal control

over financial reporting as of December 31, 2010,

based on the criteria established in Internal Control-

Integrated Framework issued by the Committee of

Sponsoring Organizations of the Treadway Commission

and our report dated February 25, 2011 expressed an

unqualified opinion on the Companys internal control

over financial reporting.

Deloitte LLP

London, England

February 25, 2011


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Consolidated Balance SheetsYear ended December 31, 2010 2009

$000 $000

Assets

Cash and cash equivalents 150,344 71,674

Restricted cash 8,429 19,894

Accounts receivable, net of allowances of $474 and $388 51,386 59,968

Due from unconsolidated companies 19,643 19,385Prepaid expenses and other 23,663 22,276

Inventories 44,245 43,678

Assets of discontinued operations held for sale 33,945 64,358

Real estate assets 68,111 120,288

Total current assets 399,766 421,521

Property, plant and equipment, net of accumulated depreciation of $277,209 and $246,912 1,268,822 1,191,531

Property, plant and equipment of consolidated variable interest entities 188,502 192,682

Investments in unconsolidated companies 60,428 58,432

Goodwill 177,498 149,180

Other intangible assets 18,987 18,936

Other assets 23,711 40,408

2,137,714 2,072,690

Liabilities and Equity

Working capital facilities 1,174 6,666

Accounts payable 25,448 23,240

Accrued liabilities 71,436 73,875

Deferred revenue 28,963 68,784

Liabilities of discontinued operations held for sale 2,910 14,646

Current portion of long-term debt and obligations under capital leases 124,805 173,223

Current portion of long-term debt of consolidated variable interest entities 1,775 165

Total current liabilities 256,511 360,599

Long-term debt and obligations under capital leases 511,336 559,042

Long-term debt of consolidated variable interest entities 90,529 79,304

Liability for pension benefit 5,617 7,402

Other liabilities 30,095 19,742

Deferred income taxes 100,730 94,872

Deferred income taxes of consolidated variable interest entities 61,835 64,100

Liability for uncertain tax positions 8,194 7,151

1,064,847 1,192,212

Commitments and contingencies

Equity:

Shareholders' equity:

Preferred shares $0.01 par value (30,000,000 shares authorized, issued nil) - -

Class A common shares $0.01 par value (120,000,000 shares authorized):

Issued 102,373,241 (2009 76,843,053) 1,023 769

Class B common shares $0.01 par value (120,000,000 shares authorized):Issued 18,044,478 (2009 18,044,478) 181 181

Additional paid-in capital 968,492 714,980

Retained earnings 140,015 202,774

Accumulated other comprehensive loss (38,585) (39,814)

Less: reduction due to class B common shares owned by a subsidiary 18,044,478 (181) (181)

Total shareholders equity 1,070,945 878,709

Non-controlling interests 1,922 1,769

Total equity 1,072,867 880,478

2,137,714 2,072,690

See notes to consolidated financial statements.


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Statements of Consolidated OperationsYear ended December 31, 2010 2009 2008

$000 $000 $000

Revenue 571,942 450,910 494,676

Expenses:

Depreciation and amortization 45,483 39,950 33,931

Cost of services 309,768 220,114 225,388Selling, general and administrative 190,594 164,827 177,088

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment 38,497 6,500 5,551

Total expenses 584,342 431,391 441,958

Gain on disposal of fixed assets - 1,385 -

(Losses)/earnings from operations (12,400) 20,904 52,718

Impairment of investment in unconsolidated company - - (22,992

(Losses)/earnings before net finance costs, provision for income taxes and earnings from unconsolidated companies (12,400) 20,904 29,726

Interest expense, net (33,839) (31,068) (46,874

Foreign currency, net 5,686 (1,067) 4,945

Net finance costs (28,153) (32,135) (41,929

Losses before provision for income taxes and earnings from unconsolidated companies, net of tax (40,553) (11,231) (12,203

(Provision for)/benefit from income taxes (24,754) (13,076) 1,832

Losses before earnings from unconsolidated companies (65,307) (24,307) (10,371

Earnings from unconsolidated companies, net of tax of $2,228, $4,510 and $6,986 2,258 4,183 16,771

Net (losses)/earnings from continuing operations (63,049) (20,124) 6,400

Earnings/(losses) from discontinued operations, net of tax provision/(credit) of $(1,684), $(10,004) and $5,620 ,469 (48,613) (32,754

Net losses (62,580) (68,737) (26,354

Net earnings attributable to non-controlling interests (179) (60) (197

Net losses attributable to Orient-Express Hotels Ltd. (62,759) (68,797) (26,551

Basic (losses)/earnings per share: $ $ $

Net (losses)/earnings from continuing operations (0.69) (0.30) 0.15

Net earnings/(losses) from discontinued operations 0.01 (0.71) (0.76

Net losses (0.68) (1.01) (0.61

Diluted (losses)/earnings per share:

Net (losses)/earnings from continuing operations (0.69) (0.30) 0.15

Net earnings/(losses) from discontinued operations 0.01 (0.71) (0.76

Net losses (0.68) (1.01) (0.61

Dividends per share - - 0.10



16/48


Statements of Consolidated Cash FlowsYear ended December 31, 2010 2009 2008

$000 $000 $000

Cash flows from operating activities:

Net losses (62,580) (68,737) (26,354)

Less: Earnings/(losses) from discontinued operations, net of tax 469 (48,613) (32,754)

Net (losses)/earnings from continuing operations (63,049) (20,124) 6,400

Adjustment to reconcile net (losses)/earnings to net cash provided by/(used in) operating activities:Depreciation and amortization 45,483 39,950 33,931

Amortization of finance costs 4,785 3,430 3,103

Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment 38,497 6,500 5,551

Undistributed earnings of unconsolidated companies (4,254) (9,212) (11,690)

Share-based compensation 5,965 4,121 2,800

Change in deferred income tax 3,652 11,720 (5,184)

Gains/(losses) from the disposals of property, plant and equipment (328) 3,710 382

Increase/(decrease) in provisions for uncertain tax positions 1,153 (4,202) (11,756)

Other non-cash items (3,425) 2,651 (136)

Change in assets and liabilities, net of effects from acquisition of subsidiaries:

Decrease/(increase) in receivables, prepaid expenses and other 2,117 (6,498) (8,857)

Decrease/(increase) in due from unconsolidated companies 2,579 (9,709) 20,343

(Increase)/decrease in inventories (13) (129) 51

Decrease/(increase) in real estate assets 50,197 (36,305) (57,289)

(Decrease)/increase in payables, accrued liabilities, and deferred revenue (42,102) 13,276 28,813

Dividends received from unconsolidated companies - 1,064 3,840

Net cash provided by operating activities from continuing operations 41,257 243 10,302

Net cash (used in)/provided by operating activities from discontinued operations (7,289) (16,769) 14,841

Net cash provided by/(used in) operating activities 33,968 (16,526) 25,143

Cash flows from investing activities:

Capital expenditures (59,866) (71,965) (107,623)

Acquisitions and investments, net of cash acquired (46,285) (86) (2,996)

Increase in restricted cash (2,815) (7,477) (9,079)

Decrease in restricted cash 13,838 807 -

Proceeds from sale of fixed assets 2,110 5,900 158

Net cash used in investing activities from continuing operations (93,018) (72,821) (119,540)

Net cash provided by/(used in) investing activities from discontinued operations 20,199 62,569 (5,353)

Net cash used in investing activities (72,819) (10,252) (124,893)

Cash flows from financing activities:

Proceeds from working capital facilities and redrawable loans 1,174 6,253 72,120

Payments on working capital facilities and redrawable loans (6,666) (47,518) (15,695)

Issuance of common shares 261,878 148,781 55,185

Issuance costs of common shares (13,826) (7,880) (2,671)

Stock options exercised 1 15 192

Issuance of long-term debt 381,158 42,244 5,738

Principal payments of long-term debt (500,197) (49,238) (33,936)

Payment of common share dividends - - (4,247)

Net cash provided by financing activities from continuing operations 123,522 92,657 76,686Net cash (used in)/provided by financing activities from discontinued operations (6,757) (60,593) 54

Net cash provided by financing activities 116,765 32,064 76,740

Effect of exchange rate changes on cash and cash equivalents (54) 1,799 (2,031)

Net increase/(decrease) in cash and cash equivalents 77,860 7,085 (25,041)

Cash and cash equivalents at beginning of year

(includes $1,295 (2010), $1,676 (2009), $4,310 (2008) of discontinued operations cash) 72,969 65,884 90,925

Cash and cash equivalents at end of year

(includes $485 (2010), $1,295 (2009), $1,676 (2008) of discontinued operations cash) 150,829 72,969 65,884



17/48

Balance, January 1, 2008 - 424 181 515,307 302,369 30,431 (181) 1,754 850,28

Issuance of class A common shares

in direct offering, net of issuance costs - 86 - 52,428 - - - - 52,51

Share-based compensation - - - 2,800 - - - - 2,80

Stock options exercised - - - 192 - - - - 19

Dividends on common shares - - - - (4,247) - - - (4,24

Comprehensive loss:

Net loss on common shares - - - - (26,551) - - (26,551) ,197 (26,35

Other comprehensive loss - - - - - (90,641) - (90,641) ,8 (90,63

(117,192)

Dividends to non-controlling interest - - - - - - - ,(388) (388

Balance, December 31, 2008 - 510 181 570,727 271,571 (60,210) (181) 1,571 784,16

Issuance of class A common shares

in public offering, net of issuance costs - 259 - 140,642 - - - - 140,90


Stock options exercised - - - 15 - - - - 1

Comprehensive loss:


Other comprehensive income - - - - - 20,396 - 20,396 (47) 20,34

(48,401)

Acquisition of non-controlling interest - - - (525) - - - ,185 (34

Balance, December 31, 2009 - 769 181 714,980 202,774 (39,814) (181) 1,769 880,47

Issuance of class A common sharesin public offering, net of issuance costs - 253 - 247,799 - - - - 248,05


Stock options exercised - 1 - - - - - -

Comprehensive loss:


Other comprehensive income - - - - - 1,229 - 1,229 (26) 1,20

(61,530)

Balance, December 31, 2010 - 1,023 181 968,492 140,015 (38,585) (181) 1,922 1,072,86



Statements of Changes in Consolidated Total Equity

PreferredShares at

Par Value$000

Class ACommonShares atPar Value

$000

Class BCommonShares atPar Value

$000

AdditionalPaid-In

Capital$000

RetainedEarnings

$000

AccumulatedOther

ComprehensiveIncome/(Loss)

$000

CommonShares

held by aSubsidiary

$000

Total

ComprehensiveIncome/(Loss)

$000

Non-

ControllingInterests

$000Tot

$00


18/48


Notes to Consolidated Financial Statements

1. Summary of significant accounting policiesand basis of presentation

Business

In this report Orient-Express Hotels Ltd. is referred to as the Company, and

the Company and its subsidiaries are referred to collectively as OEH.

At December 31, 2010, OEH owned or invested in 41 deluxe hotels and

resorts located in the United States, Mexico, Caribbean, Europe, southern

Africa, South America, Southeast Asia, Australia and South Pacific, a stand-

alone restaurant in New York, six tourist trains in Europe, Southeast Asiaand Peru, and a river cruise ship in Burma and five canal boats in France.

Basis of presentation

The accompanying consolidated financial statements have been prepared

in accordance with accounting principles generally accepted in the United

States of America (U.S. GAAP) and reflect the results of operations,

financial position and cash flows of the Company and all its majority-owned

subsidiaries and variable interest entities in which OEH is the primary

beneficiary. The consolidated financial statements have been prepared

using the historical basis in the assets and liabilities and the historical

results of operations directly attributable to OEH, and all intercompany

accounts and transactions between the Company and its subsidiaries have

been eliminated. Unconsolidated companies that are 20% to 50% owned

are accounted for on an equity basis.

FASB means Financial Accounting Standards Board. ASC means the

Accounting Standards Codification of the FASB and ASU means an

Accounting Standards Update of the FASB.

Discontinued operations

As reported in Note 2, OEH has presented certain activities within discontinued

operations and, accordingly, the results of these activities have been reflected

as discontinued operations for all periods presented. These activities are the

hotels Bora Bora Lagoon Resort, Lapa Palace, Windsor Court, Lilianfels Blue

Mountains and Htel de la Cit, the restaurant La Cabana, and two Internet-

based companies, Luxurytravel.com UK Ltd. and O.E. Interactive Ltd.

Cash and cash equivalents

Cash and cash equivalents include all cash balances and highly-liquid

investments having original maturities of three months or less.

Cash proceeds from sale of discontinued operations

OEH has reclassified an item it had previously reported in the consolidated

statements of cash flows for the periods presented. Proceeds from the

sales of discontinued operations previously classified as investing activities

from continuing operations have been presented in net cash flows from

investing activities from discontinued operations. There has been no

change to the total reported in net cash used in investing activities for the

periods presented. The amounts of reclassification are $67,446,000 and

$nil in 2009 and 2008, respectively. The reclassification has no impact on

the statements of consolidated operations, consolidated balance sheets, orchanges in cash or cash equivalents reported for the years presented.

Foreign currency

The functional currency for each of the Companys foreign subsidiaries is the

applicable local currency, except for properties in French West Indies, Brazil,

Peru and one property in Mexico, where the functional currency is U.S. dollars.

For foreign subsidiaries with a functional currency other than the U.S.

dollar, income and expenses are translated into U.S. dollars, the reporting

currency of the Company, at the average rates of exchange prevailing

during the year. The assets and liabilities are translated into U.S. dollars at

the rates of exchange on the balance sheet date and the related translation

adjustments are included in accumulated other comprehensive income/(loss).

Translation adjustments arising from intercompany financing of a subsidiary

that is considered to be long-term in nature are accounted for and are also

recorded in other comprehensive income/(loss) as they are considered part

of the net investment in the subsidiary. Foreign currency transaction gains

and losses are recognized in earnings as they occur.

Estimates

The preparation of financial statements in conformity with U.S. GAAP requires

management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and the disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amounts of

revenues and expenses during the reporting period. Estimates include,

among others, the allowance for doubtful accounts, fair value of derivative

instruments, estimates for determining the fair value of goodwill, long-lived

and other intangible asset impairment, stock compensation, depreciation and

amortization, carrying value of assets including intangible assets, employee

benefits, taxes, and contingencies, projected revenue and costs for real

estate revenue recognition. Actual results may differ from those estimates.


19/48


Share-based compensation

Share-based compensation expense for OEHs share-based payment

awards is recognized in earnings on a straight-line basis over the requisite

service period of the award. Compensation expense for performance share

awards is recognized when it becomes probable that the performance

criteria, if any, specified in the awards will be achieved. The total cost of a

share-based payment award is reduced by estimated forfeitures expected

to occur over the vesting period of the award. The grant date fair value of

share-based payment awards is determined using the Black-Scholes

model. See Note 16.

Under its 2007 performance share plan and 2009 share award andincentive plan, the Company granted share-based payment awards with

performance and market conditions to certain employees during the three

years ended December 31, 2010. The fair value of the awards at the grant

date is determined using the Monte Carlo simulation model. For awards

with market conditions, the conditions are incorporated into the

calculations, and the compensation value is not adjusted if the conditions

are not met. For awards with performance conditions, compensation

expense is recognized when it becomes probable that the performance

criteria specified in the awards will be achieved and, accordingly, the

compensation value is adjusted following the changes in the estimates of

shares likely to vest based on the performance criteria.

Revenue recognition

Hotel and restaurant revenue is recognized when the rooms are occupied

and the services are performed. Tourist train and cruise revenue is

recognized upon commencement of the journey. Deferred revenue

consisting of deposits paid in advance is recognized as revenue when the

services are performed for hotels and restaurants and upon

commencement of tourist train and cruise journeys. Revenue under

management contracts is recognized based upon the attainment of certain

financial results, primarily revenue and operating earnings, in each contract

as defined.

Real estate revenue recognition

Revenue from real estate activities represents the proceeds from sales of

undeveloped land and developed properties that OEH is holding for sale.

Profit from sales of land and developed properties is recognized upon

closing using the full accrual method of accounting, provided that all the

requirements prescribed by the accounting guidance have been met.

Revenue related to projects still under construction is recognized under the

percentage-of-completion method where all criteria have been met. For

sales that do not meet these criteria, revenue is deferred.

During the three months ended December 31, 2008, the downturn in the

global economy resulted in a slowdown in the condominium apartment

sales at Porto Cupecoy compared to prior estimates. Accordingly, OEHs

management concluded that it was no longer possible to estimate

reasonably total project sales proceeds and profits and, therefore, revenue

on the Porto Cupecoy project could no longer be recorded using the

percentage-of-completion method.

Effective October 1, 2008, revenue on the Porto Cupecoy project is

accounted for as deposits until the criteria required by the accounting

guidance are met. Under this method, all project-related costs are

accumulated on the balance sheet as real estate assets held for sale and

all customer sales proceeds are deferred on the balance sheet as deposits.

Three months ended Year ended

March 31 June 30 September 30 December 31 Tota

2008 2008 2008 2008 Reversa

$000 $000 $000 $000 $00

Revenue 3,730 4,413 3,454 11,597 26,93

Costs 3,868 4,247 3,101 11,216 21,69

Gross profit (138) 166 353 381 5,24

Revenue and costs previously recognized in OEHs consolidated

statements of operations were reversed in the three months ended

December 31, 2008, in the following amounts:

Starting in 2010, OEH began to recognize revenues from Porto Cupecoy

as the development was substantially completed and units were being

occupied as sales were completed.

Earnings from unconsolidated companies

Earnings from unconsolidated companies include OEHs share of the net

earnings of its equity investments as well as interest income related to loans

and advances to the equity investees. This interest income specifically related

to Hotel Ritz, Madrid in 2010 and Charleston Place Hotel in 2008, and

amounted to $372,000 in 2010 (2009-$nil; 2008-$12,608,000). See Note 3.

Marketing costs

Marketing costs are expensed as incurred (except in the case of real estate

projects), and are reported in selling, general and administrative expenses.

Marketing costs include costs of advertising and other marketing activities.

These costs were $33,480,000 in 2010 (2009-$28,923,000; 2008-$36,382,000)

Interest expense, net

Interest expense, net includes $1,315,000 of interest income in 2010 (2009-

$1,172,000; 2008-$1,597,000). OEH capitalizes interest during the

construction of assets. Interest expense, net excludes interest which has

been capitalized in the amount of $3,130,000 in 2010 (2009-$5,275,000;

2008-$7,628,000).

Foreign currency, net

Foreign currency, net consists entirely of foreign currency exchange

transaction gain of $5,686,000 in 2010 (2009 - loss of $1,067,000;

2008 - gain of $4,945,000).

Income taxes

OEH accounts for income taxes under the asset and liability method, which

requires the recognition of deferred tax assets and liabilities for the

expected future tax consequences of events that have been included in the

financial statements.

Deferred income taxes result from temporary differences between the

financial reporting and tax bases of assets and liabilities. Deferred taxes are

recorded at enacted statutory rates and are adjusted as enacted rates

change. Classification of deferred tax assets and liabilities corresponds wit

the classification of the underlying assets and liabilities giving rise to the

temporary differences or the period of expected reversal, as applicable. A

valuation allowance is established, when necessary, to reduce deferred tax

assets to the amount that is more likely than not to be realized based on

available evidence.

In evaluating OEHs ability to recover deferred tax assets within the

jurisdiction from which they arise, management considers all available

positive and negative evidence, including scheduled reversals of deferred


20/48


Depreciation expense is computed using the straight-line method over

the following estimated useful lives:

Real estate assets

Real estate assets consist primarily of inventory costs of real estate

property developments. Expenditures directly related to non-hotel real

estate developments, such as real estate taxes and capital improvements,

are capitalized. Inventory costs of real estate development include

construction costs and ancillary costs, which are expensed as real estate

revenue is recorded. Direct selling costs, such as the costs of model

apartments and their furnishings and semi-permanent signs, are capitalized

within the cost of real estate assets for sale. Other costs directly associated

with sales, such as direct sales commissions, are recorded as prepaidexpenses and charged to expense in the period in which the related

revenue is recognized as earned. Costs that do not meet the criteria for

capitalization, such as the salaries of sales personnel, general and

administrative expenses of the sales office, advertising and promotions, are

expensed as incurred. Land property development costs are accumulated

by project and are allocated to individual residential units, principally using

the relative sales value method.

Impairment of long-lived assets

OEH management evaluates the carrying value of long-lived assets for

impairment by comparing the expected undiscounted future cash flows of

the assets to the net book value of the assets if certain trigger events occur.

If the expected undiscounted future cash flows are less than the net bookvalue of the assets, the excess of the net book value over the estimated fair

value is charged to current earnings. Fair value is based upon discounted

cash flows of the assets at a rate deemed reasonable for the type of asset

and prevailing market conditions, sales of similar assets, appraisals and, if

appropriate, current estimated net sales proceeds from pending offers.

OEH evaluates the carrying value of long-lived assets based on its plans, at

the time, for such assets and such qualitative factors as future development

in the surrounding area, status of expected local competition and projected

incremental income from renovations. Changes to OEHs plans, including a

decision to dispose of or change the intended use of an asset, can have a

material impact on the carrying value of the asset.

Investments

Investments include equity interests in and advances to unconsolidated

companies.

Goodwill and other intangible assets

Goodwill is not amortized and must be evaluated at least annually to

determine impairment. Goodwill impairment testing is performed in two

steps, first, the determination of impairment based upon the fair value of

each reporting unit as compared with its carrying value and, second, if

there is an implied impairment, the measurement of the amount of the

impairment loss is determined by comparing the implied fair value of

goodwill with the carrying value of the goodwill. If the carrying value of the

tax liabilities, projected future taxable income, tax planning strategies and

recent financial operations. In the event management were to determine

that OEH would be able to realize its deferred income tax assets in the

future in excess of their net recorded amount, management would make an

adjustment to the valuation allowance which would reduce the provision for

income taxes.

Income tax positions must meet a more-likely-than-not threshold to be

recognized. Management recognizes tax liabilities in accordance with U.S.

GAAP applicable to uncertain tax positions, and adjusts these liabilities

when judgment changes as a result of the evaluation of new information not

previously available. Due to the complexity of some of these uncertainties,

the ultimate resolution may result in a payment that is materially differentfrom OEHs current estimate of the tax liabilities. These differences will be

reflected as increases or decreases to income tax expense in the period in

which they are determined. OEH recognizes interest and penalties related

to unrecognized tax benefits within the income tax expense line in the

accompanying consolidated statements of operations. Accrued interest

and penalties are included within the related tax liability line in the

consolidated balance sheets.

Earnings per share

Basic earnings per share exclude dilution and are computed by dividing net

earnings/(losses) available to common shareholders by the weighted

average number of class A and B common shares outstanding for the

period. Diluted earnings per share reflect the increase in shares using thetreasury stock method to reflect the impact of an equivalent number of shares

of stock if share options were exercised and share-based awards were

converted into common shares. The number of shares used in computing

basic and diluted earnings per share was as follows:

For the three years ended December 31, 2010, all share options and

share-based awards were excluded from the calculation of the dilutedweighted average number of shares because OEH incurred a net loss in all

periods and the effect of their inclusion would be anti-dilutive. The number

of share options and share-based awards excluded from the weighted

average shares outstanding were as follows:

The numbers of share options and share-based awards at December

31, 2010 were 3,461,070 (2009 - 2,350,422; 2008 - 1,059,315).

Inventories

Inventories include food, beverages, certain operating stocks and retail

goods. Inventories are valued at the lower of cost or market value under the

first-in, first-out method.

Property, plant and equipment, net

Property, plant and equipment, net are stated at cost less accumulated

depreciation. The cost of significant renewals and betterments is capitalized

and depreciated, while expenditures for normal maintenance and repairs

are expensed as incurred.

Year ended December 31, 2010 2009 2008

000 000 000

Basic 91,545 68,046 43,443

Effect of dilution - - -

Diluted 91,545 68,046 43,443


000 000 000

Share options 2,159,624 1,367,530 611,235

Share-based awards 577,204 363,373 60,628

2,736,828 1,730,903 671,863

Descriptions Useful lives

Buildings Up to 60 years and10% residual value

Tourist trains Up to 75 years

River cruise ship and canal boats 25 years

Furniture, fixtures and equipment 5 to 25 years

Equipment under capital lease

and leasehold improvements Lesser of initial lease term

or economic life

Certain art and antiques are not depreciated.


21/48


reporting units goodwill exceeds its implied fair value, the goodwill is

deemed to be impaired and is written down to the extent of the difference.

The determination of impairment incorporates various assumptions and

uncertainties that OEH believes are reasonable and supportable

considering all available evidence, such as the future cash flows of the

business, future growth rates and the related discount rate. Other intangible

assets with indefinite useful lives are also reviewed for impairment in

accordance with ASC 350.

Concentration of credit risk

Due to the nature of the leisure industry, concentration of credit risk withrespect to trade receivables is limited. OEHs customer base is comprised

of numerous customers across different geographic areas.

Pensions

OEHs primary defined benefit pension plan is accounted for using

actuarial valuations. Net funded status is recognized on the balance sheet

and any unrecognized prior service costs, experience gains and losses, or

transition obligation are reported as a component of other comprehensive

income/(loss) in shareholders equity. See Note 12.

In determining the expected long-term rate of return on assets,

management has reviewed anticipated future long-term performance of

individual asset classes and the appropriate asset allocation strategy given

the anticipated requirements of the plan to determine the average rate ofearnings expected on the funds invested. The projected returns are based

on broad equity and bond indices, including fixed interest rate gilts (United

Kingdom Government issued securities) of long-term duration since the

plan operates in the U.K.

Management reviews OEHs actual asset allocation on an annual basis

and rebalances investments to targeted allocations when considered

appropriate. While the analysis considers recent fund performance and

historical returns, the assumption is primarily a long-term, prospective rate.

Management continues to monitor and evaluate the level of pension

contributions based on various factors that include investment

performance, actuarial valuation and tax deductibility.

Derivative financial instruments

All derivative instruments are recorded on the balance sheet at fair value. If

a derivative instrument is not designated as a hedge for accounting purposes,

the fluctuations in the fair value of the derivative are recorded in earnings.

If a derivative is designated as a fair value hedge, the changes in the fair

value of the derivative and of the hedged item attributable to the hedged

risk are recognized in earnings. If a derivative is designated as a cash flow

hedge, the effective portions of changes in the fair value of the derivative is

recorded in a component of accumulated other comprehensive

income/(loss) and is recognized in the statements of consolidated

operations when the hedged item affects earnings. The ineffective portion

of a hedging derivatives change in the fair value will be immediately

recognized in earnings.

OEH management formally documents all relationships between

hedging instruments and hedged items, as well as its risk management

objectives and strategies for undertaking various hedge transactions. OEH

links all hedges that are designated as fair value hedges to specific assets

or liabilities on the balance sheet or to specific firm commitments. OEH

links all hedges that are designated as cash flow hedges to forecasted

transactions or to floating rate liabilities on the balance sheet. OEH

management also assesses, both at the inception of the hedge and on an

ongoing basis, whether the derivatives that are designated in hedging

relationships are highly effective in offsetting changes in fair values or cash

flows of hedged items. Should it be determined that a derivative is not

highly effective as a hedge, OEH will discontinue hedge accounting

prospectively and amounts held in accumulated other comprehensive

income would be recognized within interest expense.

OEH is exposed to interest rate risk on its floating rate debt and

management uses derivatives to manage the impact of interest rate

changes on earnings and cash flows. OEHs policy is to enter into interest

rate swap and interest rate cap agreements from time to time to hedge the

variability in interest rate cash flows on floating rate debt. These swaps

effectively convert the floating rate interest payments on a portion of the

outstanding debt into fixed payments.

Hedges of net investments in foreign operations are accounted for

similarly to cash flow hedges. Any gain or loss on the hedging instrument

relating to the effective portion of the hedge is recorded in other

comprehensive income/(loss) within foreign currency translationadjustment. The gain or loss relating to the ineffective portion will be

recognized immediately in earnings within foreign currency gains and

losses. Gains and losses deferred in other comprehensive income/(loss)

are recognized in earnings upon disposal of the foreign operation. OEH

links all hedges that are designated as net investment hedges to

specifically identified net investments in foreign subsidiaries.

Fair value measurements

Guidance on fair value measurements and disclosures (i) applies to certain

assets and liabilities that are being measured and reported on a fair value

basis, (ii) defines fair value, establishes a framework for measuring fair value

in accordance with U.S. GAAP, and expands disclosure about fair value

measurements and (iii) enables the reader of the financial statements toassess the inputs to develop those measurements by establishing a

hierarchy for ranking the quality and reliability of the information used to

determine fair values.

Guidance requires that assets and liabilities carried at fair value be

classified and disclosed in one of three categories, namely quoted market

prices in active markets for identical assets or liabilities (Level 1), observable

market-based inputs or unobservable inputs that are corroborated by marke

data (Level 2), and unobservable inputs that are not corroborated by market

data (Level 3).

OEH reviews its fair value hierarchy classifications quarterly. Changes in

significant observable valuation inputs identified during these reviews may

trigger reclassification of fair value hierarchy levels of financial assets and

liabilities. These reclassifications are reported as transfers in Level 3 at their

fair values at the beginning of the period in which the change occurs and as

transfers out at their fair values at the end of the period.

The fair value of OEHs derivative financial instruments is computed

based on an income approach using appropriate valuation techniques

including discounting future cash flows and other methods that are

consistent with accepted economic methodologies for pricing financial

instruments. Where credit value adjustments exceeded 20% of the fair value

of the derivatives, Level 3 inputs are assumed to have a significant impact

on the fair value of the derivatives in their entirety and the valuation has been

included in the Level 3 category.

Recent accounting pronouncements

In January 2010, the FASB issued an amendment to the accounting for fair

value measurements and disclosures requiring a gross presentation of

changes within Level 3 valuations period to period as a rollforward, and

adding a new requirement to disclose transfers in and out of Level 1 and

Level 2 measurements. The new disclosures apply to all entities that report

recurring and nonrecurring fair value measurements. This amendment is

effective in the first interim reporting period beginning after December 15,

2009, with an exception for the gross presentation of Level 3 rollforward

information, which is required for annual reporting periods beginning after

December 15, 2010, and for interim reporting periods within those years.

The Companys adoption of the provisions of this amendment during the

quarter ended March 31, 2010 did not have a material impact on the

Companys financial statement disclosures.


22/48

2. Discontinued operations

(a) Lilianfels Blue Mountains

On January 29, 2010, OEH completed the sale of the property and

operations of Lilianfels Blue Mountains in Katoomba, Australia for a cash

consideration of $18,667,000. The hotel was a part of OEHs hotels and

restaurants segment. The disposal resulted in a gain of $7,183,000

(including a $7,292,000 transfer of foreign currency translation gain from

other comprehensive income) which is reported within earnings/(losses)

from discontinued operations, net of tax.

The following is a summary of the net assets sold and gain on sale:

Results of discontinued operations of Lilianfels Blue Mountains are

as follows:

In the year ended December 31, 2009, OEH identified a non-cash property,

plant and equipment impairment charge of $9,809,000 in respect of Lilianfels

Blue Mountains. The carrying value of the assets was written down to the fair

value based on managements best estimate. In addition, an impairment of

goodwill of $548,000 was recognized in the first quarter of 2009.

(b) La Cabana

On May 25, 2010, OEH completed the sale of the restaurant La Cabana in

Buenos Aires, Argentina for cash consideration of $2,712,000. The restaurant

was a part of OEHs hotels and restaurants segment. The disposal resulted ina loss on sale of $460,000 (including a $294,000 transfer of foreign currency

gain from other comprehensive income) which is reported within earnings/

(losses) from discontinued operations, net of tax. The assets of La Cabana

were sold in December 2009 and the shares in the restaurant-owning

company in May 2010.

Year ended December 31, 2010 2010 2009 2008

$000 $000 $000

Revenue 856 9,555 9,659

(Losses)/earnings before tax

and gain on sale (132) 246 (270)

Gain on sale/(impairment) 7,183 (10,357) -

Earnings/(losses) before tax 7,051 (10,111) (270)

Tax provision - 1,847 (201)Net earnings/(losses)

from discontinued operations 7,051 (8,264) (471)


In June 2009, the FASB issued authoritative guidance that amends the

evaluation criteria to identify the primary beneficiary of a variable interest

entity (VIE) and requires ongoing assessment of whether a reporting entity

is the primary beneficiary of the variable interest entity. The determination of

whether a reporting entity is required to consolidate another entity is based

on, among other things, the other entitys purpose and design and the

reporting entitys ability to direct the activities that most significantly impact

the other entitys economic performance. The Company adopted the

provisions of this guidance during the quarter ended March 31, 2010. There

was no impact on the Companys consolidated results of operations and

financial position, other than the modification of certain disclosures related

to the Companys involvement in variable interest entities.In June 2009, the FASB issued an amendment to the accounting and

disclosure requirements for transfers of financial assets, modifying the

derecognition guidance and eliminating the exemption from consolidation

for qualifying special-purpose entities. The Company adopted the

provisions of the amendment during the quarter ended March 31, 2010,

and there was no impact on the Companys consolidated results of

operations and financial position.

The Company is considering the guidance issued by the FASB in

October 2009 that amends the accounting for revenue recognition on

multiple-deliverable revenue arrangements. Specifically, the guidance

addresses the unit of accounting for arrangements involving multiple

deliverables. It also addresses how arrangement consideration should be

allocated to the separate units of accounting, when applicable. The

adoption of the provisions of this amendment is required for fiscal yearsbeginning on or after June 15, 2010, and is not expected to have a material

impact on the Companys financial statements.

In December 2010, the FASB issued guidance concerning the

performance of the second step of goodwill impairment testing, namely

measurement of the amount of an impairment loss. The ASU amends the

criteria for performing the second step for reporting units with zero or

negative carrying amounts and requires performing the second step if

qualitative factors indicate that it is more likely than not that a goodwill

impairment exists. OEH will adopt ASU 2010-28 for impairment tests

performed in periods beginning after December 15, 2010, and OEH is

currently evaluating the impact of this adoption of the ASU on its

consolidated financial statements.

January 29, 2010 $000

Property, plant and equipment, net 18,582

Net working capital surplus 66

Other assets 158

Deferred income taxes (730)

Net assets 18,076

Transfer of foreign currency translation gain (7,292)

10,784

Consideration:

Cash 18,667

Less: costs to sell (700)

17,967

Gain on sale 7,183


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The following is a summary of the net assets sold and loss on sale:

Results of discontinued operations of La Cabana are as follows:

An impairment loss of $5,368,000 was recognized for La Cabana tangible

assets in the year ended December 31, 2009, to reflect the level of offers

being received on the restaurant.

(c) Lapa Palace Hotel

On June 2, 2009, OEH sold the shares in its Lapa Palace Hotel subsidiary

in Lisbon, Portugal for $41,983,000. The hotel was a part of OEHs hotels

and restaurants segment. Of the sale price, $26,287,000 was received in

cash on the date of sale and the remaining amount was received in 2010.

The disposal resulted in a gain on sale of $4,826,000 (including a $6,719,000

transfer of foreign currency gain from other comprehensive income/(loss))

which is reported within losses from discontinued operations, net of tax.

The following is a summary of the net assets sold and gain on sale:


May 25, 2010 $000



Other assets 43

Net assets 3,198

Transfer of foreign currency translation gain (294)

2,904

Consideration:

Cash 2,712

Less: costs to sell (268)

2,444

Loss on sale (460)

June 2, 2009 $000

Cash 1,303


Net working capital deficit (281)

Loans (715)

Deferred income tax (965)

Net assets 42,675

Reversal of foreign currency translation gain (6,719)

35,956

Consideration:

Cash 26,287

Deferred, discounted to present value 15,394Less: costs to sell (899)

40,782

Gain on sale 4,826


$000 $000 $000

Revenue - 16,963 23,904

Losses before tax and loss on sale (1,699) (25,597) (7,052

Loss on sale - (1,089) -

Losses before tax (1,699) (26,686) (7,052

Tax benefit - 6,114 2,302

Net losses from

discontinued operations (1,699) (20,572) (4,750


$000 $000 $000

Revenue - 1,143 1,834

Losses before tax and gain on sale - (627) (800)

Loss on sale/impairment (460) (5,368) -

Losses before tax (460) (5,995) (800)

Tax provision - - -

Net losses from discontinued operations (460) (5,995) (800)

Results of discontinued operations of the Lapa Palace Hotel are as

follows, with 2010 earnings relating to interest income:

(d)Windsor Court Hotel

On October 2, 2009, OEH sold the net assets of Windsor Court Hotel in

New Orleans, Louisiana for a cash consideration of $44,250,000. The hotel

was a part of OEHs hotels and restaurants segment. The disposal resulted

in a loss on sale of $1,089,000 which is reported within earnings/(losses)

from discontinued operations, net of tax.

The following is a summary of the net assets sold and loss on sale

recorded in 2009:

Results of discontinued operations of Windsor Court Hotel are as follows

In 2010, a loss of $1,699,000 at Windsor Court Hotel was recorded

following settlement of an insurance claim for $500,000, resultingin a write-off of costs above that amount.

(e) Assets held for sale: Bora Bora Lagoon Resort, Htel de la Cit,

and O.E. Interactive/Luxurytravel.com

As previously reported, OEH is selling its investment in Bora Bora Lagoon

Resort. The property sustained damage as a result of a cyclone in February

2010 and is currently closed. The property continues to be actively marketed

and is saleable in its current condition as land for future development. OEH

engaged additional selling agents who are appropriately incentivized to sell

the property within one year, which OEH expects to achieve, and is currently

in discussions with interested parties.

October 2, 2009 $000



Deferred costs 459

Net assets 44,427

Consideration:

Cash 44,250

Less: working capital adjustment (266

Less: costs to sell (646

43,338

Loss on sale 1,089


$000 $000 $000

Revenue - 2,860 12,457

Earnings/(losses) before

tax and gain on sale 280 (827) 64

Gain on sale/impairment - 4,826 (1,028

Earnings/(losses) before tax 280 3,999 (964

Tax provision - - (711

Net earnings/(losses) from

discontinued operations 280 3,999 (1,675


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3. Variable interest entities

In accordance with the guidance for the consolidation of a VIE, OEH analyzes

its variable interests, including loans, guarantees and equity investments,

to determine if an entity is a VIE. OEHs analysis includes both quantitative

and qualitative considerations. OEH bases its quantitative analysis on the

forecast cash flows of the entity, and its qualitative analysis on a review of

the design of the entity, organizational structure including decision-making

ability, and relevant financial agreements. OEH also uses its qualitative

analysis to determine if OEH is the primary beneficiary of the VIE.

Charleston Place Hotel

OEH holds a 19.9% equity investment in Charleston Center LLC, owner of

Charleston Place Hotel. OEH has also made a number of loans to the hotel.

On evaluating its various variable interests in the hotel, OEH concluded that

effective December 31, 2008, the hotel no longer qualified for certain scope

exemptions under ASC 810-10 because OEHs share of loans provided to

the hotel had increased and OEH provides a majority of subordinated

financial support. OEH further concluded that it is the primary beneficiary of

this VIE as defined in ASC 810-10 because OEH is expected to absorb a

majority of the entitys residual gains or losses based on the current

organizational structure. OEH has consolidated the VIE effective December

31, 2008. The results of the operation of Charleston Place Hotel were included

in the consolidated financial statements of OEH from January 1, 2009 andtherefore any intercompany transactions were eliminated from that date.

These conclusions have not changed as a result of subsequently issued

accounting guidance of the FASB which requires an assessment of OEHs

ability to direct the activities that most significantly impact the VIEs

economic performance.

The carrying amounts of consolidated assets and liabilities of Charleston

Center LLC included within OEHs consolidated balance sheets as of

December 31, 2010 and 2009 are summarized as follows:


Year ended December 31, 2010 2009

$000 $000

Current assets 4,565 6,683

Other assets 1,029 2,164

Property, plant and equipment, net of depreciation 28,351 55,511

Total assets held for sale 33,945 64,358

Liabilities held for sale (2,910) (14,646)

Year ended December 31, 2010 2009

$000 $000

Current assets 5,897 5,027

Property, plant and equipment 188,502 192,682

Goodwill 40,395 40,395Other assets 2,823 1,612

Total assets 237,617 239,716

Current liabilities (17,827) (17,940)

Third-party debt, including

$1,775 and $165 current portion (92,304) (79,469)

Deferred income taxes (61,835) (64,100)

Total liabilities (171,966) (161,509)

Net assets (before amounts payable

to OEH of $94,141 and $107,362) 65,651 78,207

In November 2010, OEH decided to sell Htel de la Cit in Carcassonne,

France which is included in the hotels and restaurants segment. OEH is

currently in negotiation to complete the sale of this hotel.

In December 2010, OEH decided to sell its Internet-based companies

O.E. Interactive Ltd. and Luxurytravel.com UK Ltd. which are included in the

trains and cruises segment. These companies became held for sale based

on an offer from a third party to purchase them. This sale is expected to be

completed in the first half of 2011.

The hotels and Internet-based companies have been classified as held

for sale and their results have been presented as discontinued operations

for all periods presented.

Summarized operating results of the hotels and Internet-basedcompanies held for sale are as follows:

In the year ended December 31, 2010, OEH settled outstanding claims

with its insurance carrier regarding damages sustained at Bora BoraLagoon Resort and has recorded an insurance gain of $5,750,000 in the

year. This gain was offset by restructuring and inventory impairment

charges. The restructuring charges included a restructuring provision of

$2,187,000 for an employee severance scheme completed in 2010. OEH

also recorded an impairment of $459,000 due to obsolete inventory.

In the year ended December 31, 2009, impairment losses were

recognized for Bora Bora Lagoon Resort tangible assets of $16,510,000 to

reflect the level of offers being received for the purchase of the hotel.

In the year ended December 31, 2010, OEH identified and recorded a

non-cash property, plant and equipment impairment charge of $5,989,000

in respect of Htel de la Cit. The carrying values of the assets were written

down to the fair value to reflect the level of offers received on the hotel and

the price at which OEH is currently negotiating a sale completion.

In the year ended December 31, 2010, OEH identified and recorded a

non-cash intangible asset impairment charge of $1,070,000 in respect of

the two Internet-based businesses. The carrying values of the intangible

assets were written down to reflect the level of offers being received.

Assets and liabilities of the hotels and Internet-based companies that

have been classified as held for sale consisted of the following:

Prior year comparatives include balances of Windsor Court Hotel which

was sold in October 2009: $2,034,000 of current assets, $9,000 of other

assets and $202,000 of liabilities. Prior year comparatives also include

balances of Lilianfels Blue Mountains which was sold in January 2010:

$1,293,000 of current assets, $109,000 of other assets, $18,916,000 of fixed

assets and $8,152,000 of liabilities. In addition, prior year comparatives

include liabilities of $157,000 relating to Lapa Palace Hotel which was sold

in June 2009.


$000 $000 $000

Revenue 6,729 13,124 16,561

Losses before tax and impairment (633) (3,314) (5,492)

Impairment loss/other (5,754) (16,510) (12,556)

Losses before tax (6,387) (19,824) (18,048)

Tax benefit/(provision) 1,684 2,043 (7,010)

Net losses from

discontinued operations (4,703) (17,781) (25,058)


25/48

4,000,000 ($5,651,000) (determ

Documents

Relatório Orient Express